Moving in to New Markets

Business consultant CK Prahalad can see why big corporations are moving into low-income markets

The world’s biggest corporations are scrambling to tap a market they have largely ignored for decades – the world’s four billion poor people.

From South Africa to Brazil, companies like Danone and Unilever sell individual packets of yoghurt and soap in rural villages and urban open-air markets. In the telecommunications sector, the biggest growth area is among the poor, who are snapping up mobile phones.

Some 60 per cent of the world’s population exist on less than $2 (1.47) a day. Previously shunted aside as lacking purchasing power, they are now regarded as a buoyant growth market.

“We have to get away from thinking of the poor as a problem,” said CK Prahalad, author of the book The Fortune at the Bottom of the Pyramid, at a recent presentation in Johannesburg.

“Part of the problem is that people have not had a full understanding of the size of the opportunity,” he said.

Prahalad, a business consultant and professor at the University of Michigan, said the purchasing power of poor people seems small expressed in dollars, but carries more clout in emerging market economies, where goods cost less.

The world’s four billion poor are estimated to have $5 trillion of annual purchasing power parity, a measure that tries to translate local buying strength into another currency based on common goods.

Prahalad sees the move by big firms as a win-win situation, with companies boosting sales while low-income consumers get access to low-cost, quality goods and new technology.

INNOVATION

To tap the market, though, innovation is key. Firms have to develop new, affordable products and devise novel ways of selling them.

In India, where the trend got off the ground several years ago, the local unit of Anglo-Dutch consumer products group Unilever developed a detergent that requires less water for poor rural customers.

The unit, Hindustan Lever Ltd, also put together a rural selling network, Shakti (meaning “strength”), which employs about 31,000 women to sell soap, shampoo, detergent and other products door-to-door in more than 100,000 villages.

In Brazil, Swiss food group Nestle opened a new factory this year to produce small packets of powdered milk, biscuits and coffee to be sold door-to-door or in small shops.